"No man is above the law and no man is below it: nor do we ask any man's permission when we ask him to obey it." T.R.
Representing the voice of little people.

Thursday, July 17, 2014

Record $7 Billion Global Settlement with Citigroup

The Justice Department, along with federal and state partners, today
announced a $7 billion settlement with Citigroup Inc. to resolve federal
and state civil claims related to Citigroup’s conduct in the packaging,
securitization, marketing, sale and issuance of residential
mortgage-backed securities (RMBS) prior to Jan. 1, 2009. The resolution
includes a $4 billion civil penalty—the largest penalty to date under
the Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA). As part of the settlement, Citigroup acknowledged it made
serious misrepresentations to the public—including the investing
public—about the mortgage loans it securitized in RMBS. The resolution
also requires Citigroup to provide relief to underwater homeowners,
distressed borrowers and affected communities through a variety of means
including financing affordable rental housing developments for
low-income families in high-cost areas. The settlement does not absolve
Citigroup or its employees from facing any possible criminal charges.
This settlement is part of the ongoing efforts of President Obama’s
Financial Fraud Enforcement Task Force’s RMBS Working Group, which has
recovered $20 billion to date for American consumers and investors.
“This historic penalty is appropriate given the strength of the
evidence of the wrongdoing committed by Citi,” said Attorney General
Eric Holder. “The bank’s activities contributed mightily to the
financial crisis that devastated our economy in 2008. Taken together, we
believe the size and scope of this resolution goes beyond what could be
considered the mere cost of doing business. Citi is not the first
financial institution to be held accountable by this Justice Department,
and it will certainly not be the last.”
The settlement includes an agreed upon statement of facts that
describes how Citigroup made representations to RMBS investors about the
quality of the mortgage loans it securitized and sold to investors.
Contrary to those representations, Citigroup securitized and sold RMBS
with underlying mortgage loans that it knew had material defects. As the
statement of facts explains, on a number of occasions, Citigroup
employees learned that significant percentages of the mortgage loans
reviewed in due diligence had material defects. In one instance, a
Citigroup trader stated in an internal e-mail that he “went through the
Diligence Reports and think[s] [they] should start praying . . . [he]
would not be surprised if half of these loans went down. . . It’s
amazing that some of these loans were closed at all.” Citigroup
nevertheless securitized the loan pools containing defective loans and
sold the resulting RMBS to investors for billions of dollars. This
conduct, along with similar conduct by other banks that bundled
defective and toxic loans into securities and misled investors who
purchased those securities, contributed to the financial crisis.
“Today, we hold Citi accountable for its contributing role in
creating the financial crisis, not only by demanding the largest civil
penalty in history, but also by requiring innovative consumer relief
that will help rectify the harm caused by Citi’s conduct,” said
Associate Attorney General Tony West. “In addition to the principal
reductions and loan modifications we’ve built into previous resolutions,
this consumer relief menu includes new measures such as $200 million in
typically hard-to-obtain financing that will facilitate the
construction of affordable rental housing, bringing relief to families
pushed into the rental market in the wake of the financial crisis.”
Of the $7 billion resolution, $4.5 billion will be paid to settle
federal and state civil claims by various entities related to RMBS:
Citigroup will pay $4 billion as a civil penalty to settle the Justice
Department claims under FIRREA, $208.25 million to settle federal and
state securities claims by the Federal Deposit Insurance Corporation
(FDIC), $102.7 million to settle claims by the state of California, $92
million to settle claims by the state of New York, $44 million to settle
claims by the state of Illinois, $45.7 million to settle claims by the
Commonwealth of Massachusetts, and $7.35 to settle claims by the state
of Delaware.
Citigroup will pay out the remaining $2.5 billion in the form of
relief to aid consumers harmed by the unlawful conduct of Citigroup.
That relief will take various forms, including loan modification for
underwater homeowners, refinancing for distressed borrowers, down
payment and closing cost assistance to homebuyers, donations to
organizations assisting communities in redevelopment and affordable
rental housing for low-income families in high-cost areas. An
independent monitor will be appointed to determine whether Citigroup is
satisfying its obligations. If Citigroup fails to live up to its
agreement by the end of 2018, it must pay liquidated damages in the
amount of the shortfall to NeighborWorks America, a non-profit
organization and leader in providing affordable housing and facilitating
community development.
The U.S. Attorney’s Offices for the Eastern District of New York and
the District of Colorado conducted investigations into Citigroup’s
practices related to the sale and issuance of RMBS between 2006 and
2007.
“The strength of our financial markets depends on the truth of the
representations that banks provide to investors and the public every
day,” said U.S. Attorney John Walsh for the District of Colorado,
Co-Chair of the RMBS Working Group. “Today’s $7 billion settlement is a
major step toward restoring public confidence in those markets. Due to
the tireless work by the Department of Justice, Citigroup is being
forced to take responsibility for its home mortgage securitization
misconduct in the years leading up to the financial crisis. As important
a step as this settlement is, however, the work of the RMBS working
group is far from done, we will continue to pursue our investigations
and cases vigorously because many other banks have not yet taken
responsibility for their misconduct in packaging and selling RMBS
securities.”
“After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due
Diligence providers and their employees, and after collecting nearly 25
million documents relating to every residential mortgage backed security
issued or underwritten by Citigroup in 2006 and 2007, our teams found
that the misconduct in Citigroup’s deals devastated the nation and the
world’s economies, touching everyone,” said U.S. Attorney of the Eastern
District of New York Loretta Lynch. “The investors in Citigroup RMBS
included federally-insured financial institutions, as well as a host of
states, cities, public and union pension and benefit funds,
universities, religious charities, and hospitals, among others. These
are our neighbors in Colorado, New York and around the country,
hard-working people who saved and put away for retirement, only to see
their savings decimated.”
This settlement resolves civil claims against Citigroup arising out
of certain securities packaged, securitized, structured, marketed, and
sold by Citigroup. The agreement does not release individuals from civil
charges, nor does it release Citigroup or any individuals from
potential criminal prosecution. In addition, as part of the settlement,
Citigroup has pledged to fully cooperate in investigations related to
the conduct covered by the agreement.
Michael Stephens, Acting Inspector General for the Federal Housing
Finance Agency said, “Citigroup securitized billions of dollars of
defective mortgages, after which investors suffered enormous losses by
purchasing RMBS from Citi not knowing about those defects. Today’s
settlement is another significant step by FHFA-OIG and its law
enforcement partners to hold accountable those who committed acts of
fraud and deceit in the lead up to the financial crisis, and is a
necessary step toward reviving a sound RMBS market that is crucial to
the housing industry and the American economy. We are proud to have
worked with the Department of Justice, the U.S. Attorneys’ Offices in
the Eastern District of New York and the District of Colorado. They have
been great partners and we look forward to our continued work
together.”
The underlying investigation was led by Assistant U.S. Attorneys
Richard K. Hayes, Kevin Traskos, Lila Bateman, John Vagelatos, J. Chris
Larson and Edward K. Newman, with the support of agents from the Office
of the Inspector General for the Federal Housing Finance Agency, in
conjunction with the President’s Financial Fraud Enforcement Task
Force’s RMBS Working Group.
The RMBS Working Group is a federal and state law enforcement effort
focused on investigating fraud and abuse in the RMBS market that helped
lead to the 2008 financial crisis. The RMBS Working Group brings
together more than 200 attorneys, investigators, analysts and staff from
dozens of state and federal agencies including the Department of
Justice, 10 U.S. Attorneys’ Offices, the FBI, the Securities and
Exchange Commission (SEC), the Department of Housing and Urban
Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, the
Office of the Special Inspector General for the Troubled Asset Relief
Program, the Federal Reserve Board’s Office of Inspector General, the
Recovery Accountability and Transparency Board, the Financial Crimes
Enforcement Network, and more than 10 state Attorneys General offices
around the country.
The RMBS Working Group is led by its Director Geoffrey Graber and its
five co-chairs: Assistant Attorney General for the Civil Division
Stuart Delery, Assistant Attorney General for the Criminal Division
Leslie Caldwell, Director of the SEC’s Division of Enforcement Andrew
Ceresney, U.S. Attorney for the District of Colorado John Walsh and New
York Attorney General Eric Schneiderman.